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ANALYSIS: Riccitiello's $1bn digital dream

Christopher Dring
ANALYSIS: Riccitiello's $1bn digital dream

EA will smash its $1bn digital target this year, analysts have predicted.It follows the publisher’s $750m to $1.3bn acquisition of PopCap. The move means EA is now back as the No.2 publisher on Facebook (behind Zynga) and its mobile revenues should top $300m this year.

EA made $833m in digital revenue in its last financial year.

“There’s no one like us. There isn’t a competitor that’s a leader in console, PC, DLC, microtransaction, iOS and social networks,” said EA CEO John Riccitiello. “Today about a quarter of industry revenue comes from mobile, social, tablet and casual PC. We expect that 25 per cent to rise to 50 per cent or more in the coming five years.

“We’ve been stepping down investment against our core packaged goods business, and stepping up investment against digital opportunity. This year we’re getting close to 50/50. Three years ago, we were closer to 90/10.

“Virtually everything we’re doing now is against the digital opportunity. It’s where we see our growth. It’s where we see our margin expansion. It gets us that less seasonable, more ratable, and more profitable business.”

IHS Screen Digest analysts said in a report shown to MCV: “EA should realise its ambition of creating a $1bn digital business this fiscal year with aplomb.”

EA is the West’s leading iOS publisher, success which has offset a decline in traditional mobile gaming.Last year EA generated $242m from mobile games alone, and this year IHS Screen Digest predicts that number will exceed $300m thanks to the PopCap Games buyout.

PopCap is just the latest in a long line of acquisitions that have boosted EA’s mobile aspirations. In 2006 the company bought JamDat for $680m to essentially launch EA Mobile, last year Angry Birds-publisher Chillingo was purchased for $17m, while this year the firm has acquired iOS developer Firemint and port specialists Mobile Post Production.

“The fastest growing part of the mobile industry is the smartphone, all of which are game-ready devices,” said EA chief John Riccitiello.“We estimate that 64 per cent of the owners of smartphones use them to play games.”

EA is making aggressive moves in the full game PC download space by creating EA Origin. The new service is currently a rebranded version of its EA Store, but the publisher is recruiting technical and regional staff to turn this into something more in-line with rivals such as Steam.EA’s ambition to grow this part of its digital business suffered a set-back after a disagreement with Steam that means some of its titles – such as the upcoming Battlefield 3 – will not be sold through the platform.

EA’s biggest digital market comes from DLC and free-to-play (including Facebook), which combined generated $295m during its last financial year.

On Facebook EA acquired developer Playfish for $400m in 2009. Playfish has seen its revenue grow in that time, but its market share fell 4.2 per cent in 2010 (according to IHS Screen Digest), meanwhile Farmville developer Zynga increased its dominance of the market by growing its share 7.6 per cent.

As a result EA temporarily lost its position as the second biggest Facebook publisher to German firm Wooga. EA is now back at No.2 after the acquisition of PopCap as the developer is successful on the social network with games like Bejeweled Blitz. PopCap has also enjoyed success on Chinese social network RenRen thanks to a version of Plants vs Zombies re-made by its Shanghai studio.

EA will likely grow its Facebook business with the release of The Simpsons and The Sims social games later this year.EA’s Riccitiello believes free games with revenue generated from microtransactions will become more significant to EA in the future: “It would not surprise me to see microtransactions become our largest potential revenue stream in the course of the fullness of time,” he said.In terms of DLC, EA will grow this segment primarily through its Battlefield and FIFA games. FIFA 11 is on-course to generate $64m in digital revenue by the end of its lifespan, double what FIFA 10 achieved. This is expected to grow for FIFA 12.

“We’re starting to see significant digital leverage per packaged goods franchise,” said EA’s CFO Eric Brown. “What we’re looking to do is to get more titles into $50m+ digital extension level like we’ve done with FIFA and Battlefield: Bad Company 2.”

The success of EA’s subscription business this year will rest heavily on when Star Wars: The Old Republic is released. If the BioWare-developed MMO manages to arrive during this financial year, EA can expect to comfortably beat last year’s total, which was driven by EA’s legacy MMOs and casual games network Pogo. In-game advertising is continuing to have a difficult time.

“Subscriptions will grow substantially once Star Wars: The Old Republic launches,” said Game Investor Consulting analyst Nick Gibson. “I do think there will be a lot of people who buy the boxed product, but how many of those will become paying subscribers is still to be answered.”

EA says PopCap will generate $75m for the publisher this year, across mobile and free-to-play. The casual games company is best known for its range of hits including Bejeweled, Plants vs Zombies (pictured), Zuma and Peggle.“PopCap Games brings us proven casual IP, a creative team and culture with a demonstrated ability to create new hits, a road map for growth in Asia and increased scale in critical mobile and social platforms,” said Riccitiello. “We have the highest degree of respect for this team and are confident that this is an excellent investment for EA.”

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Tags: Retail , ea , Digital , revenue

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